The North Bay residential real estate market is decelerating and showing signs of fatigue after five consecutive years of growth. That was the main takeaway by three of our associates from Terra Firma Global Partners when they studied sales statistics and trends from the first three quarters of 2016 and compared them with the first three quarters of 2015.
The report, published by Ellen Politz (Napa County), Trish McLean (Sonoma County) and Jaime Pera (Marin County) shows that residential sales are leveling off and fear is driving the market. Here are a few highlights from their report.
Single-family homes and condos
The single-family home and condominium sales in the three North Bay counties plateaued in 2016 and the forecast for 2017 is that home and condo sales would remain flat with a chance to decline in some micro-markets.
During the first nine months of 2016, 15 percent fewer homes and condos traded ownership in Marin County, 5.3 percent fewer in Sonoma and 9.6 percent fewer sales occurred in Napa counties, according to data compiled from BAREIS (Bay Area Real Estate Information Services) and NorCal MLS.
Despite the drop in sales volume, median pricing increased in all three counties during 2016, particularly in Marin (20 percent) and Sonoma County, where the median price of sold homes increased 9 percent during the first nine months of 2016 compared with the first nine months of 2015. In Napa County, the median home and condo sale price increased 1.75 percent during the first nine months last year.
Regarding inventory, McLean reported, “We’d have to go back to 2011 to find more than two months of inventory…indicating that (at least for now) under two months of inventory is the new normal.”
The average price per square foot increased nominally in Marin and Sonoma counties for the reporting periods, largely because home prices have been rising since 2011 with the largest spikes coming in 2014 and 2015. That left little room for big price increases in 2016 – at least in Marin and Sonoma, which is another sign of a decelerating market. In Marin, the price per foot increase was 3 percent in 2016 and stood at $662 per foot at the end of September last year compared with $642 per foot at the end of September in 2015. The price per foot was 4.9 percent more in in Sonoma County ($381 vs. $364) yet in Napa County, the price per foot shot up 19 percent ($483 vs $391) during the first three quarters of last year.
Shifting markets
“In Sonoma County, we are seeing more price adjustments and more negotiations for repairs occurring. Repairs and repair credits are hard to quantify, but it is an indicator of a softening market, or at least movement toward a more level market. While this is one indicator of a stabilizing market, we are still seeing strong competition among buyers for available homes,” reported Trish McLean.
Asking rates for homes haven’t lowered on any wide scale in Marin County, Jaime Pera reported. Pera wrote that the lower and middle ends of the market are shrinking, while the high end market is growing, with some 32 percent of Marin homes for sale priced at $2 million or more at the close of the third quarter last year, or 7% more than in 2015.
Ellen Politz attributed the lack of inventory to broader ownership trends with lower turnover ‑particularly among Millennials who are delaying marriage and starting families, citing a California Association of Realtors report that homeowners are staying in their homes for an average of 10 years, instead of a the five-to-seven year range.
Both McLean and Pera cited fear as a market driver in written comments they included with their data findings. “Another factor affecting inventory is fear… sellers who are concerned that they won’t be able to find a replacement property so they don’t want to sell their home,” wrote McLean.
Looking ahead
Higher borrowing costs are now a certainty with the Federal Reserve starting the process of regular rate increases, which will make it harder for first-time buyers and move-up buyers to afford to buy a first home or trade up. Trump’s election is changing the game board in many ways, making it difficult to anticipate where the economy and financial markets will be by the second half of 2017. Among the scenarios affecting the housing markets‑reforming elements of the Dodd-Frank Act and easing regulatory compliance for banks could enable them to soften lending standards to home buyers, which could offset rising mortgage rates.
Time will tell, but the North Bay residential real estate market in 2017 is highly unlikely to display the frenetic pace of 2014 and 2015. What’s more, it will probably mirror trends from 2016, with prices stabilizing, inventory remaining super low, resulting in fewer home and condo sales overall.
Bill Facendini is president, broker and co-founder of Terra Firma Global Partners. He began his real estate career in 1989 and has represented his clients in residential, farm, ranch, land and investment properties throughout Sonoma County. For nearly two decades, he has served in various management roles at the local and regional level. A Sonoma County native, Bill was born and raised in Sebastopol.
